Skyworks Solutions, Inc. — FY2011 Form 10-K
Reporting period: Fiscal year ended September 30, 2011 (52 weeks). The filing also reports fourth-quarter results; it is an annual report, not a standalone quarterly filing. Unless noted otherwise, amounts are U.S. dollars.
Business context
Skyworks designs, manufactures and sells analog and mixed-signal semiconductors, particularly RF front-end components for cellular handsets, alongside a broad analog products business serving infrastructure, automotive, energy, industrial, medical and military markets. Management cited smartphone adoption, rising RF content per device and market-share gains as growth drivers. Foxconn, Nokia and Samsung each represented more than 10% of FY2011 revenue.
Key financial metrics
| Metric | FY2011 | FY2010 | Change or context |
|---|---|---|---|
| Revenue | $1,418.9 million | $1,071.8 million | Up 32.4% |
| Gross profit / margin | $620.3 million / 43.7% | $456.8 million / 42.6% | Margin expanded 110 basis points |
| Operating income / margin | $295.3 million / 20.8% | $199.7 million / 18.6% | Up 47.9% |
| Net income | $226.6 million | $137.3 million | Up 65.0% |
| Diluted EPS | $1.19 | $0.75 | Up 58.7% |
| Operating cash flow | $365.8 million | $223.0 million | Up $142.8 million |
| Capital expenditures | $100.7 million | $88.9 million | Investing cash outflow also included $249.3 million net acquisition spending |
| Cash and cash equivalents | $410.1 million | $453.3 million | FY2011 restricted cash was an additional $0.7 million |
| Working capital | $569.2 million | $585.5 million | Down $16.3 million |
| Debt | $26.1 million current | $74.7 million total | Credit facility repaid; remaining convertible notes due March 2012 |
FY2011 fourth quarter: Revenue was $402.3 million, gross profit $174.6 million and net income $64.2 million; diluted EPS was $0.34. Revenue and net income rose sequentially from the third quarter’s $356.1 million and $51.5 million, respectively.
Material changes versus FY2010
- Revenue growth reflected increased demand and market share in mobile internet, wireless infrastructure, energy management and analog applications, plus acquisitions.
- SiGe Semiconductor was acquired in June 2011 for approximately $278.9 million, including estimated contingent consideration. It contributed $39.7 million of revenue; its ongoing net income contribution was described as insignificant. The purchase price allocation remained preliminary.
- Gross margin improved through product mix and higher factory utilization; operating expenses rose in dollars but declined as a share of revenue. R&D increased 25.7%, including costs associated with higher headcount and SiGe.
- Cash declined $43.2 million despite stronger operating cash flow, principally due to acquisitions, capital expenditures and $70.0 million of share repurchases. The company repaid and terminated its $50.0 million credit facility.
Outlook, risks and unusual items
- No specific revenue or earnings guidance is provided. Management said existing liquidity and expected operating cash flow should fund planned needs for at least the next 12 months, while noting capital availability cannot be assured.
- Management highlighted smartphone growth, greater RF complexity and a larger addressable market, but warned of semiconductor cyclicality, economic uncertainty, pricing pressure, rapid technology change and demand volatility. Handset sales are seasonal, typically strongest in the calendar quarter ending in December.
- Customer concentration is significant: the three largest customers each exceeded 10% of FY2011 revenue, and the three largest receivable balances were 53% of gross receivables.
- The proposed Advanced Analogic Technologies (AATI) acquisition was subject to a confidential arbitration: Skyworks sought release from the merger agreement, while AATI sought specific performance or damages. The filing said the outcome was uncertain. Related shareholder litigation sought to block or challenge the transaction. Potential AATI purchase payments are not included in the contractual-obligations table.
- FY2011 included $2.4 million of restructuring charges tied to SiGe integration; management anticipated total charges of up to $2.6 million. A $2.3 million auction-rate security remained impaired versus its $3.2 million par value, with scheduled interest payments continuing.
- The effective tax rate was 22.9%, versus 29.6% in FY2010. Benefits included foreign earnings taxed at lower rates and R&D credits; tax reserves and other items partly offset those benefits.
- The auditor gave unqualified opinions on the financial statements and internal control over financial reporting. The audit and management assessment excluded SiGe controls, covering 15.9% of consolidated assets and 2.8% of revenue.
Investor verification priorities
- Track the AATI arbitration outcome, any related damages or transaction costs, and whether the proposed acquisition closes.
- Assess whether FY2011 growth and margin improvement persist without relying on acquisition contributions, IP licensing and high factory utilization.
- Monitor handset demand, customer concentration, order cancellations and receivables collectability.
- Verify repayment and settlement of the remaining convertible notes due March 2012, including the stock-price-dependent cash premium.
- Review the final SiGe purchase-price allocation, contingent consideration, integration charges and acquired intangible-asset amortization.
- Assess the realization of deferred tax assets and tax exposures; the filing reported $32.1 million of gross unrecognized tax benefits.